Finance Minister Taro Aso expressed confidence Friday that the government will smoothly map out an economic stimulus package, despite lingering discord over whether to implement a corporate tax cut.
Aso, an opponent of the tax reduction, said he will meet Prime Minister Shinzo Abe later in the day to put the final touches to the package aimed at softening the potential impact on the economy of a planned sales tax hike to 8 percent from the current 5 percent next April.
While Abe appears eager to cut the corporate tax rate, Aso said at a press conference that the government "will settle" on an acceptable conclusion.
Economic and fiscal policy minister Akira Amari, meanwhile, said the government plans to end a special corporate tax surcharge introduced to finance reconstruction work in areas hit by the March 2011 earthquake and tsunami one year earlier than planned at the end of this fiscal year in March.
Scrapping the surcharge, which will reduce the current overall tax rate of about 38 percent on Tokyo-based firms by about 2 percentage points, is expected to be part of the stimulus package to be finalized by the end of this month.
Amari indicated he believes a corporate tax cut is needed to beat nearly two decades of deflation, saying at a separate news conference it would help create a "virtuous circle" in which growth in corporate profits leads to expansion in wages, consumption and output.
Amari added the government will secure necessary financial resources, trying to dispel concern that an earlier end to the three-year 10 percent surcharge on corporate taxes could negatively affect reconstruction in the disaster areas.
A 1-point cut in the corporate tax rate is estimated to reduce government revenue by around 400 billion yen.
Aso reiterated his reluctance to cut the corporate tax rate, casting doubt on whether possible increases in corporate profits on the back of the tax measure would bring about job and wage growth.
"It's difficult to find financial resources (to cover a corporate tax cut). We'll consider it as a long-term challenge," Aso said.
Without the surcharge, the effective corporate tax rate, consisting of national and local taxes, would have stood at 35.64 percent as of January for companies based in Tokyo, higher than around 30 percent in Germany, 25 percent in China and 17 percent in Singapore, according to data released by the Finance Ministry.
Some experts say high Japanese corporate tax rates have made foreign companies unwilling to operate in the country, choking economic growth.
Abe is likely to announce on Oct. 1 whether to go ahead with the first round of a planned two-stage increase to 10 percent in October 2015 aimed at raising money needed to cover swelling social security costs for Japan's aging population.
A 5 trillion yen stimulus package to prevent the tax hike from hurting the economy is also expected to be unveiled the same day.